The Art of the Deal : Budget Impasse Can Be Broken by Honorable Compromise Politics

Under the sweltering heat of summer and the suffocating glare of the media, politicians in Washington (not to mention Sacramento) are squirming and struggling right now, wishing they were home with a cold drink and a good detective novel. But they can’t go home yet. They are immobilized by budget crises. They needn’t be. There’s a way out.

In Washington, the size of the problem is estimated to be about $169 billion (in Sacramento, it’s about $3.6 billion). But the economic numbers are less important than the political bottom line: It’s that democracy can’t work unless the workers behave as democrats (small d). Even more than an economic question, the budget deadlock raises the specter of ideology’s triumph over politics, which spells trouble in a democracy, even a republican (small r) one.

The Economic Question: The nation has a sputtering national economy, more troubled in some regions (particularly the Northeast) than others, that has reduced tax revenues, exacerbated the federal budget problem and caused Uncle Sam to borrow more money than ever to cover its bills. This forces up interest rates, tightens credit and makes the economy uptight and edgy. Worse yet, to deal with the deficit, the Gramm-Rudman-Hollings Act of 1985 requires a spending cut of more than $100 billion this year. This amount is so large that even fiscal conservatives run from it in fear that cuts so deep would traumatize the economy. So goodby, for this year at least, GRH.

What’s needed now is an old-fashioned, middle-ground, workable budget compromise--the kind of political exercise generally associated with functioning government. But Democrats and Republicans, like cats and dogs, are fighting over their pet proposals. The former--on their patented equity kick--would increase revenues by taxing people who make more than $210,000 at the same rate as those below. The latter--on their patented economic-growth kick--would increase tax revenues by encouraging investment with a reduction in the capital-gains tax.

Would either measure actually increase tax revenues and help reduce the deficit? No one knows for sure. Back in November, The Times opposed any reduction in the capital-gains tax as a “tax amnesty for the rich.” Reducing the investment tax would certainly spur investment, but its impact on the revenue picture is unclear; anyone who says otherwise may be a card-carrying, supply-side ideologue. And how much fairness is put back into the tax code if the rich are hit at the same flat tax rate as the not-so-rich? Because of the issue of deductions--fewer now for the wealthy--the answer is more complicated than anyone who’s not an equity ideologue will admit.

The Political Equation: What is certain is that both measures are viewed as vote-getters for each party. And, therefore, both measures are deal-makers. The GOP doesn’t have the votes in Congress to pass capital gains without some Democrats; the Democrats probably can’t raise rates on “the rich” over Bush’s veto. Students of Government 101 will instantly recognize the elements of a grand political compromise. As part of a larger budget deal, the two rival tax proposals can be stitched together, like political Siamese twins: the Democrats can claim greater equity and the Republicans investment growth, and the 1991 budget deficit can be brought down about $50 billion through a combination of increased revenues and cuts.

The Payoff: That compromise would break the logjam and send a signal that the government was cooking again. A deficit reduction that large would squeeze domestic programs as well as military ones, but it would be large enough to show that government was serious. Right now huge deficits fester away while single-minded political agendas crowd reason from center stage and prevent men and women of moderation from forging the needed political compromise.

As the President said Tuesday, “The time for game playing is over.” Congress mustn’t wait until after recess; the time to act is now. Doomsday Deficit Federal budget deficit projections for fiscal years, in billions of dollars: Monday’s projection 1990: $161.3 1991: $169.0 1992: $163.7 January projection 1990: $119.7 1991: $93.2 1992 $72.9 Source: U.S. Office of Management and Budget